Name
Global FinTech Guide
Country _ Name
Japan
SectionTitle
Financial advisory and broking services including robo advisory and auto-trading
Body
FinTechs belonging to this category offer advisory and broking services for investments usually via an internet platform.

Robo advisory services usually offer an investment proposition following a series of questions concerning the personal financial background and the risk-bearing capacity of the user. Sometimes the respective platform also enables the user to directly execute the proposed investment. 

Auto-trading concerns all services which automatically trade on behalf of the customer according to his or her specifications.

Apart from that some FinTechs collect and offer merely or as an ancillary service market information or operate comparison portals to increase the transparency of the capital markets and to help the investor with his decision-making.

There are also FinTech-advertising-services which advertise various financial services or products.

Introduction

Attitude of the country towards modern financial advisory and broking services

Financial advisory and broking services are usually subject to the traditional regulations for financial instruments businesses.
As for social trends, the assets balance of the five major robo-advisors increased to JPY 970.3 billion at the end of March 2022, up 60.5% from the same month last year. Likewise, the number of users expanded to 563,000, up 16.8% from the same month last year.
As a characteristic of the Japanese market, robo-advisors are particularly used by younger, IT-savvy consumers. The strength of robo-advisor services is that users can easily make investments, so it has been embraced by those who have little-to-no investment experience.


Legal affairs

Obligations and requirements to provide financial advisory and broking services, or ancillary services described above

If the service is to provide the value or other characteristics of securities or investment decisions based on an analysis of the financial instruments and to receive consideration from users in exchange, then registration as an "Investment Advisory and Agency Business" is required (Financial Instruments and Exchange Act (“FIEA”), Art. 28, para. 3).

If the service is to manage user’s assets as an investment in securities, based on a discretionary investment contract with the user, then registration as an “Investment Management Business” is required (FIEA, Art. 28, para, 4).If the service is to act as an intermediary for the purchase and sale of securities, or to receive deposits of money, securities, or other things of value, then registration as a "Type-I Financial Instruments Business" is required (FIEA, Art. 28, para. 1).

However, foreign securities companies are permitted to engage in certain securities-related businesses without registration in the following cases (proviso to Article 58-2 of the FIEA):

  • When acting from abroad toward financial institutions such as banks (FIEA Cabinet Order Article 17-3, Item 1);
  • When acting from abroad without solicitation, and
    • in response to orders from residents of Japan; or
    • through intermediation or agency by a Type I Financial Instruments Business Operator (Item 2); or
When negotiating the terms of an underwriting agreement for securities with the issuer or owner in Japan (Item 3). Regarding the concept of "solicitation" in case ii-(a) above, the Financial Services Agency (FSA), in its “Comprehensive Guidelines for Supervision of Financial Instruments Business Operators, etc.” (the “Guidelines”), provides the following interpretation (X-1-2 of the Guidelines):

  • The posting by foreign securities companies of advertisements regarding activities concerning securities-related businesses on Web sites shall in principle be deemed to constitute a solicitation.
However, it shall not be deemed a solicitation aimed at investors in Japan, provided that reasonable measures are taken to ensure the advertisement does not result in securities-related business activities with investors in Japan as counterparties
The above financial instruments business registrations require the fulfillment of the following requirements as outlined below.

  Type-I Financial Instruments Business Investment Management Business Investment Advisory and Agency Business
Minimum capital JPY 50mil-3 bil JPY 50mil N/A
Net asset requirement JPY 50mil-3 bil JPY 50mil N/A
Capital adequacy requirement Capital adequacy ratio of 120% or more N/A N/A
Personnel structure requirement x x x
Requirements for establishing a domestic sales office, office and representative in Japan x x N/A
Must be a legal entity of a certain form x x N/A
Various other regulations and requirements are imposed on financial instruments business operators. Specifically, regulations include advertising, the principle of suitability, the obligation to explain to customers, and a host of various prohibited acts. The principle of suitability means that a solicitation must not be inappropriate in light of the customer's knowledge, experience, financial situation, and the purpose of concluding the contract. In other words, the operator must not fail to protect investors.

Additional comments regarding the legal situation for financial advisory and broking services, or adjacent services or what FinTech’s must be aware of in this business area
Compared with the other two types of business registrations, the requirements for registration as a Type-I Financial Instruments Business are more stringent in terms of personnel structure and internal organization as well as financial requirements. In practice, examination by the authorities to obtain the actual registration is the most stringent. In addition, although the statutory processing period for obtaining registration as a Type-I Financial Instruments Business, Investment Management Business, or Investment Advisory and Agency Business is two months from the time of application for registration, in practice, it is generally necessary to consult with the Finance Bureau before applying for registration. Due to the differing degrees of burden placed on system development described above, the consultation period required to apply for registration tends to be longer for Type-I Financial Instruments Business, followed by somewhat shorter periods for Investment Management Business, and then Investment Advisory and Agency Business, in that order.
Although the examination period varies depending on the contents of the business to be conducted, as a practical estimate, it takes from two to four months for Investment Advisory and Agency Businesses, and from three months to nearly one year for Investment Management Businesses and Type-I Financial Instruments Business.


Economic conditions

Market size for financial advisory and broking services as well as adjacent services and biggest companies in this business area

According to statistics from the Type-II Financial Instruments Business Association, the assets of the five major robo-advisor companies totaled 970.3 billion yen at the end of March 2022. The five major companies are Wealthnavi Inc., Money Design Co., Ltd., Rakuten Securities, Inc., Monex, Inc., and FOLIO Co., Ltd. Wealthnavi is currently the industry leader, with a market share of over 50%.

Additional comments regarding the economic situation for financial advisory and broking services as well as adjacent services or what FinTech’s must be aware of in this business area

N/A

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